Chapter 13 – The Accounts Payable/ Cash Disbursements (AP/CD) Process
This chapter spotlights this process, systems, and controls that should be in place to ensure that the AP/CD process operates efficiently and effectively. Also, the specific process control procedures that help ensure all accounts payable are paid in a timely fashion.
The accounts payable/cash disbursements (AP/CD) process is an interacting structure of people, equipment, methods, and controls that is designed to accomplish the following primary functions:
Handle the repetitive work routines of the accounts payable department and the cashier
Support the decision needs of those who manage the accounts payable department and cashier
Assist in the preparation of internal and external reports
1. Invoice Recieved from Vendor
2. Approved Voucher sent to Cashier
3. Accounts Payable notification sent to general ledger process
4. Check sent from cashier to vendor
5. Paid voucher returned to the AP Department
6. Notificaiton of the cash disbursement sent from the cashier to the general ledger process
Vertical Perspective of the Accounts Payable/Cash Disbursements Process (Top to Bottom) 1. VP Finance-VP Logistics
2. Treasurer/Controller-Warehouse Mgr/Purchasing Mgr
3. Cashier/Superviosr/AP Dept-Supervisor Receiving Dept/Buyers
Horizontal Information Flows stated above.
AP/CD Logical Diagram Processes 1.0 Establish Payable
1.1 Validate Invoice
1.2 Record Payable
2.0 Make Payment
2.1 Prepare Check
2.2 Record Payment
2.3 Issue Check
Exception Routines
-Purchase returns and allowances frequently arise in this process
-Begins at the point of inspecting and counting the goods or at the point of validating vendor invoices
-To initiate an adjustment for returned goods or an allowance for non-conforming items, the purchaser usually prepares a debit memorandum and transmits it to the vendor; the vendor commonly acknowledges it by returning a credit memorandum
- In the case of a return, data also is made accessible to the storeroom and shipping department.
Processing Noninvoiced Disbursements
-Some disbursements are not invoiced, such as payroll, payroll taxes, rent, security investments, etc.
-A voucher process is used in which all expenditures must be vouchered – formally approved for payment and recorded as a payable – before they can be paid
-A true voucher system includes two steps in which a disbursement voucher must be prepared and recorded, and the data store is the vouchers payable master data
Technololgy Trends and Developments
-The AP/CD process is the primary candidate for EDI in major organizations
-Significicant cost saving in implementing EDI
-Services provided by the VANs and the high degree of EDI standardization make EDI attractive for fully digital Business to Business collaboration amount trading partners.
-Many organziations are still using web-based payment systems.
AP fraud - fictitious vendors and false invoices
Examples include a dishonest employee who has access to the vendor file and authorizes payment may embezzle amounts refunded by vendors
Human error is still the leading cause of loss
Lack of appropriate controls as well as laziness, can also cause A/P fraud issues, i.e. paying expense reports or invoices without the appropriate approval signatures on a document.
An Additional A/P fraud is a Kickback- An employee on the inside finds a pushes to use a particular vendor for multiple purchases. The vendor, in exchange for the business, charges a higher rate. The vendor then gives a percentage of the sale to the employee.
CD fraud - less sophisticated than AP fraud
Frauds in this category are more direct and less subtle than in the purchasing and accounts payable function
Examples include check fraud which such as stealing and passing stolen checks, changing amounts on legitimate checks and check forgery
Becoming easier and more common with computer duplication technology
Even though the subject of fraud and embezzlement is very interesting, resource losses from unintentional mistakes and inadvertent errors are as costly as, and if not more costly than those caused by intentional acts of malfeasance.
Examples include making payment for incorrect or larger amounts that supposed to, paying the wrong vendor, or paying the same invoice twice all of which may be unintentional but at the same time very costly to an organization.
The evolution of technology now allows individuals to use laser scanners and personal computers to create counterfeit checks and blank checks.
Banks have been able to control for this by instituting online Positive Pay systems which allow companies to verify checks presented to the bank for payment. This online system allows companies to reject or accept checks by verifying the scanned image made available online by banks.
This chapter spotlights this process, systems, and controls that should be in place to ensure that the AP/CD process operates efficiently and effectively. Also, the specific process control procedures that help ensure all accounts payable are paid in a timely fashion.
The accounts payable/cash disbursements (AP/CD) process is an interacting structure of people, equipment, methods, and controls that is designed to accomplish the following primary functions:
Accounts Payable/Cash Disbursement Horizontal Perspective
1. Invoice Recieved from Vendor
2. Approved Voucher sent to Cashier
3. Accounts Payable notification sent to general ledger process
4. Check sent from cashier to vendor
5. Paid voucher returned to the AP Department
6. Notificaiton of the cash disbursement sent from the cashier to the general ledger process
Vertical Perspective of the Accounts Payable/Cash Disbursements Process (Top to Bottom)
1. VP Finance-VP Logistics
2. Treasurer/Controller-Warehouse Mgr/Purchasing Mgr
3. Cashier/Superviosr/AP Dept-Supervisor Receiving Dept/Buyers
Horizontal Information Flows stated above.
AP/CD Logical Diagram Processes
1.0 Establish Payable
1.1 Validate Invoice
1.2 Record Payable
2.0 Make Payment
2.1 Prepare Check
2.2 Record Payment
2.3 Issue Check
Exception Routines
-Purchase returns and allowances frequently arise in this process
-Begins at the point of inspecting and counting the goods or at the point of validating vendor invoices
-To initiate an adjustment for returned goods or an allowance for non-conforming items, the purchaser usually prepares a debit memorandum and transmits it to the vendor; the vendor commonly acknowledges it by returning a credit memorandum
- In the case of a return, data also is made accessible to the storeroom and shipping department.
Processing Noninvoiced Disbursements
-Some disbursements are not invoiced, such as payroll, payroll taxes, rent, security investments, etc.
-A voucher process is used in which all expenditures must be vouchered – formally approved for payment and recorded as a payable – before they can be paid
-A true voucher system includes two steps in which a disbursement voucher must be prepared and recorded, and the data store is the vouchers payable master data
Technololgy Trends and Developments
-The AP/CD process is the primary candidate for EDI in major organizations
-Significicant cost saving in implementing EDI
-Services provided by the VANs and the high degree of EDI standardization make EDI attractive for fully digital Business to Business collaboration amount trading partners.
-Many organziations are still using web-based payment systems.
AP fraud - fictitious vendors and false invoices
- Examples include a dishonest employee who has access to the vendor file and authorizes payment may embezzle amounts refunded by vendors
- Human error is still the leading cause of loss
- Lack of appropriate controls as well as laziness, can also cause A/P fraud issues, i.e. paying expense reports or invoices without the appropriate approval signatures on a document.
An Additional A/P fraud is a Kickback- An employee on the inside finds a pushes to use a particular vendor for multiple purchases. The vendor, in exchange for the business, charges a higher rate. The vendor then gives a percentage of the sale to the employee.CD fraud - less sophisticated than AP fraud
Even though the subject of fraud and embezzlement is very interesting, resource losses from unintentional mistakes and inadvertent errors are as costly as, and if not more costly than those caused by intentional acts of malfeasance.